Superannuation is a fantastic tool to help build wealth, financial security, and set you up for retirement. But it's very easy to get it wrong. Even small oversights can end up costing you a fortune down the line.
Here are 8 common superannuation mistakes that Aussies are making.
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1. Staying with an underperforming superfund
One of the worst superannuation mistakes Australians make is sticking with a poorly performing fund. It might be too difficult or too time-consuming to shop around, but the reality is that sticking with an underperformer can cost a fortune.
Recent data from finder.com.au shows that around 6.2 million Aussies didn't know their superannuation fund was underperforming. Finder's superannuation expert Alison Banney said "if you're not monitoring your super's performance, you could be leaving the equivalent of an entire year's salary – or more – on the table by the time you retire". She warns that the difference between an average superannuation fund and a top-performing one can be the difference between scraping by in retirement and living comfortably.
2. Sticking with the default super fund investment option
Default superannuation investment options are generally designed to benefit a range of investors, from those starting their first job to those nearing retirement. After all, it is a long-term investment. But the problem is that what is considered balanced for one person doesn't apply to the next.
Growth assets might be more appropriate for Aussies with time to ride out any market fluctuations, such as good momentum stocks like Droneshield Ltd (ASX: DRO) or Zip Co Ltd (ASX: ZIP).
But those closer to retirement might be more suited to stable assets that can weather a last-minute share market crash. Dividend-paying shares, such as APA Group (ASX: APA) and Wesfarmers Ltd (ASX: WES), are also a great option for retirees who want to benefit from additional passive income.
3. Not consolidating your accounts
Around 4 million Australians have more than one superannuation account. This means they're probably paying more in fees and likely doubling up on insurance payments as well. Owning multiple funds also makes it more difficult to keep track of and manage your super. Make sure to consolidate.
4. Setting up an SMSF
Setting up a self-managed super fund (SMSF) is a fantastic idea… for the right person. For Aussies with a low balance (generally below $200,000) or close to retirement, it's not a financially wise move. SMSFs come with higher fees, and you're personally responsible for remaining compliant.
5. Not contributing enough
Relying only on employer contributions, 12% might not be enough for a comfortable retirement. Even a small additional contribution can make a big difference when it comes to retirement. The power of compounding returns means that the more money you can invest when you're younger, the more impact it will have on your final balance.
6. Losing insurance coverage
Switching or consolidating superannuation funds without checking insurance benefits can leave your balance unprotected, and that can cost you dearly if things go awry.
7. Waiting too long to seek superannuation advice
Small issues can compound over time. Getting help as soon as you need it, rather than waiting to seek advice further down the line, can help prevent large losses later on.
8. Switching in fear of a market crash
Fears about a share market crash are enough to spook anyone. But during times of potential volatility, it's important to stay on track with an investment strategy. Switching around your super fund, or its investment options, at the wrong time could result in locking in losses. And it's unlikely you'd be able to effectively time the market to get in ahead of growth markets picking back up again.
